The Digitization of Ownership and Why It's Really Cool

Trigger Warning: this post has nothing to do with schools, CRT, or even politics. But read on to discover the incredibly cool financial market developments happening right now, but not fully understood. Note that I previously wrote about crypto developments in "Why Conservatives Should Love Cryptocurrencies."

Imagine you could own a $1,000 portfolio that looked like this:

$200    New York Yankees

$375    Picasso's Guernica

$125    Ranch land in Wyoming

$250    David Bowie's song catalogue

$100    James Bond's Aston Martin

$75      Kyle Rittenhouse's prospective legal settlements

Each of these positions represents equity ownership. Crazy? Think again, because it's coming fast. These are all assets of varying sorts and there is no reason they each couldn't have fractional ownership in the form of crypto. 

You probably heard about the U.S. Constitution almost being purchased by 17,437 random people. While they didn't win the bidding, that's hardly the point. They raised $47 million in seventy-two hours. Average donation: $206. (My son was in for $180.) This was all done using crypto currency as the medium of exchange.

Nobody had to hire lawyers to set up an LLC. Nobody had to hire a management team. No intermediaries required.

They came together in the form of a DAO—a Decentralized Autonomous Organization. Basically, a bunch of people buy crypto coins, pool them, and then decide what to buy and what to do with the asset after its purchase. The more coins you own, the more votes you get.

Then there's this. 

A company called BlockBar is making it possible to buy crypto coins associated with uber-expensive bottles of rare liquor. If you own a coin, it's associated with a specific bottle. You can exchange the coin at any time for the bottle itself, which is stored safely.

Let me back up a moment. 

By now, you've probably heard of NFTs (Non-Fungible Tokens). They burst on the scene about a year ago. Until recently, they were just a way to claim ownership of a digital asset, say, an electronic image like this one, 3DPunks #087:

You can be the official owner of this image for the low, low price of $2100. Alternatively, you can copy and paste it, like I did.

It's easy to see why some, including me, were skeptical. 

More recently, though, NFTs have represented claims on a broader range of things such as experiences, access to parties parties, membership in communities, and such. 

More interesting.

But back to BlockBar.

What they are doing is creating NFT coins for tangible assets, and that's where things get very interesting. And not just tangible assets, but theoretically any kind of asset. Team ownership, legal settlements, intellectual property. Basically anything that has a value.

So, why not just own the bottle Macallan 40 itself? 

Because most people who buy these bottles are investors who never drink them, and the coin is more liquid, should they choose to sell. To quote BlackBar's CEO, "You can always exchange the digital asset for the physical, but it is easier to sell the digital asset—you don't have to physically move the bottle, ship it all over the world, and have it be authenticated over and over again by auction houses selling it."

If the Constitution DAO's investors had succeeded, any of them could have sold out at any point, perhaps making a profit.

If this all has a familiar ring, it should. Once upon a time people used precious metals as currency. But lugging gold and silver around was cumbersome and dangerous, so currencies that represented a claim on metals were created. The U.S. had the gold standard as well as silver certificates. How much easier—and safer—it became to engage in commerce. 

What we're witnessing now is an evolution in this concept—the digitization of ownership, all made possible by the underlying security of the blockchain. All sorts of previously illiquid assets, many of which have been unattainable but for the very rich, will soon be liquid and accessible to even the smallest investors.

Just imagine the new forms of investment and speculation this opens up. Think the Yankees just made a bad trade? Sell! Think Kyle Rittenhouse will end up owning CNN and MSNBC? Buy! Just want to brag about owning James Bond's car? Buy!

(The Kyle Rittenhouse angle is interesting, because if you think about it, anyone could sell "themselves," or more specifically, their future earnings stream. There could be an entire subsection of NFTs where you trade in the future prospects of famous people.)

Anyone with even a few dollars to invest can play in the most rarefied of markets.

Guernica

But this has benefits for the very rich as well. Let's say you currently own Guernica. 

(You don't, because it hangs in the Musea Reina Sophia in Madrid, but let's assume that away.)

I'm guessing Guernica is worth $150 million, but hey, it doesn't go with your new decor and you want to sell. You'll have to go through Sotheby's or Christies and pay them 10% of the auction hammer price, or $15 million. The process will take many weeks, and the painting will have to be shipped to the auction house for authentication and viewing. It's all very time consuming and expensive.

This is why trading in and out of things like paintings really doesn't happen much. The friction is too great.

But, if your ownership were digitized on the blockchain, you could sell it tomorrow. Or, if you prefer, sell 49% and still maintain controlling rights, which means Guernica still hangs over your fireplace.

Expenses go down, liquidity goes up. These are compelling things. And they both add significant value to any asset.

Digital stock markets are already being created, such as Open Sea. Most of the listings are, frankly, digital effluence like 3DPunks #087. But tangibles will be there soon enough. Coinbase is planning an NFT market, and they may quickly become the market leader. (Full disclosure: I own shares.)

Sure, all this will take some time. Owners of things will have to decide to go digital, or they'll have to sell to DAOs. But an increasingly varied number of assets will find their way into the crypto space.

Here's hoping our regulators don't feel the need to screw it up. They tend to get very uneasy when confronted with new things they don't fully understand. Digitization is highly democratic, and decentralization is something we all should embrace, particularly conservatives and libertarians.

Digital Picasso ownership? Already here. Not Guernica, but a painting called "Fillette au beret."

Buckle up, it's going to be fun.

UPDATE (2/24/21): Making the Naked Dollar look quite prescient, a DAO is currently raising money to but the Denver Broncos.